DHIRAJ KUMAR PREMCHAND, THIRUKAZHUKUNDRAM V. ITO NON CORPORATE WARD 23(4), CHENNAI

ITA 1484/CHNY/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8795 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 13-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G D JAYANTHI ANGAYARKANNI
• Keywords: Share purchase agreement; Principle of natural justice; Earning of tax free income; Wrong claim; Set aside; Capital Gains
• Section: 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.1484/CHNY/2019 ( / ASSESSMENT YEAR: 2014-15) SHRI DHIRAJ KUMAR PREMCHAND, NEW NO.83, OLD NO.39, BIG STREET, THIRUKAZHUKUNDRAM, - 603 109. VS THE INCOME TAX OFFICER, NON-CORPORATE CIRCLE 23(4), CHENNAI. PAN: AHQPD 0572R ( /APPELLANT) ( /RESPONDENT) APPELLANT BY : SHRI UTTAM CHAND JAIN, CA RESPONDENT BY : SMT. G.D. JAYANTHI ANGAYARKANNI, JCIT /DATE OF HEARING : 19.08.2019 !' /DATE OF PRONOUNCEMENT : 16.09.2019 ' / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-10, CHENNAI IN ITA NO.187/16-17/CIT(A)-10 DATED 17.01.2019 FOR THE ASS ESSMENT YEAR 2014-15. 2 ITA NO.1484/CHNY/2019 2. SHRI DIRAJ KUMAR PREMCHAND, THE ASSESSEE, AN I NDIVIDUAL PURCHASED 5,000 SHARES ON 31.01.2012 PER SHARE OF M/S. SMART CHAMP IT & INFRA LTD., AT RS.10/-. THE COMPANY M/S. SMART CHAMP IT & INFRA LTD., WAS SUBSEQUENTLY MERGED WITH M/S. CRE SSANDA SOLUTIONS LTD., AND THE ASSESSEE RECEIVED THE SAME 5,000 SHAR ES OF M/S. CRESSANDA SOLUTIONS LTD., ON ACCOUNT OF MERGER ON 21.02.2013. SUBSEQUENTLY, SOLD THEM FOR RS.24,83,572/- AND CLAI MED IT AS AN EXEMPT INCOME U/S.10(38). THE ASSESSING OFFICER RECEIVED A REPORT FROM THE INVESTIGATION WING OF KOLKATA, IN WHICH, I NTER ALIA, THE ASSESSEE WAS SPECIFIED AS ONE OF THE PARTIES WHO IN DULGED IN BOGUS / NON-GENUINE LONG TERM CAPITAL GAIN FROM THE TRANSAC TIONS OF ALLEGED PURCHASE AND SALE OF SHARES OF M/S. CRESSANDA SOLUT IONS LTD. FURTHER, THE SHARES OF M/S. CRESSANDA SOLUTIONS LTD ., WERE FOUND BY THEM AS PENNY STOCK COMPANY WHICH HAS BEEN USED FOR GENERATING BOGUS LTCG AND THE INVESTIGATIONS REVEALED THAT A S CHEME WAS HATCHED BY VARIOUS PLAYERS TO OBTAIN / PROVIDE ACCO MMODATION OF ENTRY OF BOGUS LTCG THROUGH MANIPULATION OF STOCK M ARKET. THEREFORE, THE ASSESSING OFFICER SCRUTINIZED THE AS SESSMENT, REQUIRED THE ASSESSEE TO FURNISH PARTICULARS AND AF TER CONSIDERING THE ASSESSEES REPLY ETC., EXAMINED THE ENTIRE SET OF T RANSACTIONS IN THE BACKGROUND OF THE INFORMATION RECEIVED FROM THE DIT (INV), KOLKATTA 3 ITA NO.1484/CHNY/2019 AND ON DETAILED ANALYSIS OF THE TRANSACTIONS HELD, INTER ALIA, THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES ARE NOT GENUINE. IT WAS METICULOUSLY PLANNED & CREATED. IT WAS ONLY AN OUTC OME OF A PRE- PLANNED SCHEME FOR CONVERTING THE UNACCOUNTED MONEY INTO TAX EXEMPT INCOME, A DEVICE TO INTRODUCE THE ASSESSEES OWN UNACCOUNTED MONEY. THEREFORE, THE ASSESSING OFFICER ASSESSED THE ENTIRE AMOUNT OF AT RS.24,83,572/- AS AN UNEXPLAINE D INCOME. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD CIT(A) DISMISSED THE APPEAL. AGGRIEVED AGAINST THA T ORDER, THE ASSESSEE FILED THIS APPEAL. 3. IT WAS SUBMITTED BY LD.AR THAT THE ISSUE IN THIS A PPEAL IS AGAINST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ADDITIONS MADE BY THE ASSESSING OFFICER IN TREATING THE PURCHASE A ND SALE OF SHARES BY THE ASSESSEE AS PENNY STOCK TRANSACTIONS. THE L D.AR SUBMITTED THAT LD.CIT(A) DISMISSED THE APPEAL MAINLY RELYING ON THE REPORT OF THE INVESTIGATION WING OF THE DEPARTMENT AND WITHOU T APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, HE PLEADED TO ALLOW THE APPEAL. PER CONTRA, THE LD.DR SUBMITTED T HAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10 (38) BUT HE HAS NOT FU RNISHED ANY 4 ITA NO.1484/CHNY/2019 MATERIAL IN SUPPORT OF HIS CLAIM AND TO PROVE THE G ENUINENESS OF THE TRANSACTIONS. THEREFORE, REITERATING THE FACTS AND CIRCUMSTANCES OF THIS CASE FROM THE ORDERS OF THE LOWER AUTHORITIES, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOTICED THAT THE ASSESSEE HAS NOT BEEN GIVEN A FAIR OPPORTUNITY TO PROVE THE GENUINENESS OF THE TRANSACTIONS BUT THE ASSESSMENT HAS BEEN MADE PRIMARILY BASED ON THE EVIDENCES COLLECTED BY THE R EVENUE IN THE COURSE OF THE INVESTIGATION CONDUCTED BY THEM ON TH E BROKERS / SHARE BROKING ENTITIES ETC. THIS IS NOT PERMISSIBLE. THIS BEING SO, IN THE INTERESTS OF NATURAL JUSTICE, THE ISSUE OF THE GENU INENESS OF THE TRANSACTIONS REQUIRE RE-ADJUDICATION. SINCE, THE RI GHT TO EXEMPTION MUST BE ESTABLISHED BY THOSE WHO SEEK IT, THE ONUS THEREFORE LIES ON THE ASSESSEE. IN ORDER TO CLAIM THE EXEMPTION FROM PAYMENT OF INCOME TAX, THE ASSESSEE HAD TO PUT BEFORE THE INCO ME TAX AUTHORITIES PROPER MATERIALS WHICH WOULD ENABLE THE M TO COME TO A CONCLUSION. (35 ITR 312 (SC)). THUS, THE AO MUST KE EP IN MIND THAT THE ONUS OF PROVING THE EXEMPTION RESTS ON THE ASSE SSEE. IF THE AO DOES HAVE ANY EVIDENCE TO THE CONTRARY, IT IS TO BE PUT TO THE 5 ITA NO.1484/CHNY/2019 ASSESSEE FOR HIS REBUTTAL. THE INTERNAL COMMUNICATI ONS OF THE REVENUE ARE EVIDENCES FOR DRAWING AN OPINION ON POS SIBLE WRONG CLAIMS BUT THEY ARE NOT THE FINAL EVIDENCE. THIS TRIBUNAL IN THE CASE OF KANHAIYALAL & SONS (HUF) V. ITO IN I.T.A. NO.184 9/CHNY/2018 DATED 06.02.2019, HAS REMITTED BACK THE MATTER TO T HE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION. THIS TRIBUNA L HAS OBSERVED AT PARA 4 OF ITS ORDER AS UNDER:- 4. WE HEARD SHRI AR.V. SREENIVASAN, THE LD. DEPART MENTAL REPRESENTATIVE ALSO. ADMITTEDLY, THE ASSESSING OFF ICER DISALLOWED THE CLAIM OF THE ASSESSEES ON THE BASIS OF THE INFORMATION SAID TO BE RECEIVED FROM THE INVESTIGAT ION WING OF THE DEPARTMENT AT KOLKATA WITH REGARD TO INVESTMENT MADE BY THE ASSESSEES IN THE PENNY STOCK COMPANY. IT IS NOT IN DISPUTE THAT A COPY OF THE INVESTIGATION REPORT SAID TO BE RECEIVE D FROM KOLKATA WAS NOT FURNISHED TO THE ASSESSEE. MOREOVER, DETAI LS OF THE ENQUIRIES SAID TO BE MADE BY THE ASSESSING OFFICER WERE ALSO NOT FURNISHED TO THE ASSESSEES. IN THOSE CIRCUMSTANCES , THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFF ICER HAS TO RECONSIDER THE ISSUE AFRESH AFTER FURNISHING THE MA TERIAL RELIED UPON BY THE ASSESSING OFFICER. ACCORDINGLY, THE OR DERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASS ESSING OFFICER SHALL BRING ON RECORD THE ROLE OF THE ASSESSEES IN PROMOTING THE COMPANY AND THE RELATIONSHIP OF THE ASSESSEES, IF A NY WITH THE PROMOTERS, ROLE OF THE ASSESSEES IN INFLATING THE P RICE OF SHARES, ETC. THE ASSESSING OFFICER SHALL ALSO FURNISH A CO PY OF THE INVESTIGATION REPORT SAID TO BE RECEIVED FROM THE I NVESTIGATION WING OF THE DEPARTMENT AT KOLKATA AND OTHER MATERIA LS IF ANYTHING IN HIS POSSESSION AND THEREAFTER DECIDE TH E ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE O PPORTUNITY TO THE ASSESSEES. 6 ITA NO.1484/CHNY/2019 4.1 FURTHER, PERUSAL OF THE ABOVE CASE SHOW TH AT IT IS SIMILAR TO THE FACTS IN THE CASE OF SHRI HEERACHAND KANUNG A, A DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL MADE, FOR AS SESSMENT YEARS 2010-11 & 2011-12 IN ITA NOS. 2786 & 2787/MDS/2017 DATED 03.05.2018. THE RELEVANT PORTIONS FROM THAT ORDER I S EXTRACTED AS UNDER :- 9. A PERUSAL OF THE FACTS IN THE PRESENT CASE ADMITTEDLY GIVEN ROOM FOR SUSPICION. HOWEVER, ASSESSMENTS ARE NOT TO BE DONE ON THE BASIS OF MERE SUSPICION. IT HAS TO BE SUPPORTED BY FACTS AND THE FACTS ARE UNFORTUNATELY NOT FORTHCOMING IN THE ASSESSMENT ORDER, IN THE ORDER OF THE LD.CIT(A) NOR FROM THE S IDE OF THE ASSESSEE. THE MAIN FOUNDATION OF THE ASSESSMENT IN THE PRESENT CASE IS THE STATEMENT OF ONE SHRI ASHOK KUMAR KAYAN WHO HAS ADMITTED TO HAVE PROVIDED BOGUS LONG TERM CAPITAL GAINS TO HIS CLIEN TS. THE SAID SHRI ASHOK KUMAR KAYAN ALSO ALLEGEDLY SEEM S TO HAVE PROVIDED THE ASSESSEES NAME AND PAN AS ONE OF THE BENEFICIARIES. HOWEVER, THIS STATEMENT GIVE N BY SHRI ASHOK KUMAR KAYAN CANNOT BE THE FOUNDATION FOR THE PURPOSE OF ASSESSMENT IN SO FAR AS SHRI ASHOK KUMAR KAYAN HAS NOT BEEN PROVIDED TO THE ASSESSEE F OR CROSS-EXAMINATION. IN THE ABSENCE OF OPPORTUNITY O F CROSS-EXAMINATION, THE STATEMENT REMAINS MERE INFORMATION AND SUCH INFORMATION CANNOT BE FOUNDATI ON FOR ASSESSMENT. 10. ADMITTEDLY, THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED 15000 SHARES FROM M/S.BPL @ RS.20/- PER SHARE TOTALING INTO RS.3,00,000/-. THE ASSESSEE CLA IMS TO HAVE PAID CASH FOR THE PURCHASE OF THESE SHARES. 7 ITA NO.1484/CHNY/2019 THE PRIMARY QUESTION WOULD BE AS TO WHERE THE PURCHASE WAS DONE? IF THE PURCHASE HAS BEEN DONE IN KOLKATA, HOW WAS THE CASH TRANSFERRED? WHEN DID THE ASSESSEE RECEIVED THE SHARE CERTIFICATES AND THE SH ARE TRANSFER FORMS? HOW DID THE ASSESSEE OVERCOME THE PROVISIONS OF SEC.40A(3)? WAS THERE ADEQUATE CASH AVAILABILITY IN THE BOOKS OF THE ASSESSEE ON 24.04. 2008? DID THE ASSESSEE TRAVELLED TO KOLKATA? HOW WAS THE TRANSACTION DONE? WHO APPLIED FOR THE DEMATING OF THE SHARES? WHEN WERE THEY DEMATED? WHEN WERE THE SHARES TRANSFERRED TO THE DEMAT ACCOUNT OF THE ASSESSEE? TO WHOM WERE THE SHARES SOLD DURING THE ASSESSMENT YEARS 2010-11 & 2011-12? WHEN WERE THE CHEQUES RECEIVED BY THE ASSESSEE? FROM WHOM DID TH E ASSESSEE RECEIVED THE CHEQUES? WAS THERE ANY CASH DEPOSIT IMMEDIATELY PRIOR TO THE ISSUING OF THE CHE QUE FROM THE BANK ACCOUNT OF THE PURCHASER OF THE SHARE S OF THE ASSESSEE? 11. A PERUSAL OF THE ASSESSMENT ORDER AT PARA NO.7.1 SHOWS THAT IN THE WRITTEN SUBMISSIONS, THE ASSESSEE STATES THAT HE HAS PURCHASED 15000 SHARES OF M/S.BPL FROM M/S.ABPL, KOLKATA. HOWEVER, IN PARA NO.8.3, IT IS MENTIONED THAT THE ASSESSEE IN GOOD F AITH HAS PURCHASED THE SHARES OF M/S.BPL FROM A SUB-BROK ER IN HIS FRIENDS CIRCLE. WHAT IS THE TRUE NATURE OF THE TRANSACTION? FROM WHOM DID THE ASSESSEE ACTUALLY PURCHASE THE SHARES? DID THE ASSESSEE TAKE POSSESS ION OF THE SHARES IN ITS PHYSICAL FORM? IN PARA NO.8.1 OF THE ASSESSMENT ORDER, IT IS MENTIONED THAT THE ASSESSEE IS AN INVESTOR AND HAS BEEN REGULARLY TRAD ING IN SHARES. IF THIS IS SO, DOES THE DEMAT ACCOUNT S HOW SUCH TRANSACTIONS BEING DONE BY THE ASSESSEE OR IS THIS THE ONLY ONE OF TRANSACTION. THUS, CLEARLY THE FAC TS REQUIRED FOR ADJUDICATING THE APPEALS ARE NOT FORTHCOMING. THERE IS NO EVIDENCE WHATSOEVER TO SH OW 8 ITA NO.1484/CHNY/2019 THAT THE ASSESSEE HAS HELD THE SHARES FOR MORE THAN 12 MONTHS. THIS IS BECAUSE ASSUMING THAT THE DEMAT HA S BEEN DONE AND THE SHARES OF M/S.BPL HAS COME INTO T HE ASSESSEES DEMAT ACCOUNT AND HAS IMMEDIATELY FLOWN OUT. THEN THE FACTUM OF THE POSSESSION OF THE SHAR ES FOR MORE THAN 12 MONTHS HAVE TO BE PROVED BY THE ASSESSEE. THIS IS ALSO NOT FORTHCOMING. IN REPLY TO A SPECIFIC QUERY, AS THE DATE OF THE DEMAT OF SHARES, IT WAS SUBMITTED BY THE LD.AR THAT THE DEMAT WAS DONE ON VARIOUS DATES. THEN THE QUESTION RISES AS TO WH Y THERE IS SO MUCH OF DIFFERENCE IN THE DATES OF DEMA TING WHEN 15000 SHARES HAVE BEEN PURCHASED TOGETHER ON 24.04.2008. NO DETAILS IN RESPECT OF M/S.BPL COMPA NY IS KNOWN, WHAT IS THE PRODUCT OF THE COMPANY WHICH HAD LEAD TO THE SHARE VALUE OF THE COMPANY TO GO UP FROM RS.20/- TO RS.352/- IN A PERIOD OF TWO YEARS. THIS WOULD CLEARLY BE A CASE WHERE THE SHARE VALUE OF TH E COMPANY WAS HITTING THE CIRCUIT BREAKER OF THE STOC K EXCHANGE ON A DAILY BASIS AND OBVIOUSLY IT WOULD HA VE DRAWN ATTENTION. THIS BEING SO, AS THE FACTS ARE N OT COMING OUT OF THE ASSESSMENT ORDER NOR THE ORDER OF THE LD.CIT(A) NOR FROM THE SIDE OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ISSUES IN THIS APPEAL MUST BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE AND WE DO SO. 12. THE STATEMENT RECORDED BY THE REVENUE FROM SHRI ASHOK KUMAR KAYAN CANNOT BE USED AS AN EVIDENCE AGAINST THE ASSESSEE IN SO FAR AS THE STATEMENT HAS NOT BEEN GIVEN TO THE ASSESSEE NOR HA S SHRI ASHOK KUMAR KAYAN BEEN PROVIDED TO THE ASSESSE E FOR CROSS-EXAMINATION. HOWEVER, THE ASSESSEE SHALL PROVE THE TRANSACTION OF THE LONG TERM CAPITAL GAIN S IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED THE EXEMPTION U/S.10(38) BY PROVIDING ALL SUCH EVIDENCE S 9 ITA NO.1484/CHNY/2019 AS REQUIRED BY THE AO TO SUBSTANTIATE THE CLAIM AS ALSO BY PRODUCING THE PERSONS THROUGH WHOM THE ASSESSEE HAS UNDERTAKEN THE TRANSACTION OF THE PURCHASE AND SALE OF THE SHARES WHICH WOULD INCLUDE THE SUB-BROK ER, FRIEND AND THE BROKER THROUGH WHOM THE TRANSACTION HAS BEEN DONE, BEFORE THE AO FOR EXAMINATION. 13. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE IN ITA NOS.2786 & 2787/CHNY/2017 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4.2 RESPECTFULLY FOLLOWING THE ABOVE ORDERS, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE DEEM IT FIT TO REMIT THE ISSUE OF EXEMPTION IN THIS APPEAL BACK TO THE FILE OF THE AO FOR RE-ADJUDICATION ON THE LINES INDICATED ABOVE. THEREFORE, THE AO SHA LL REQUIRE THE ASSESSEE; TO ESTABLISH WHO, WITH WHOM, HOW AND IN W HAT CIRCUMSTANCES THE IMPUGNED TRANSACTIONS WERE CARRIE D OUT ETC., TO PROVE THAT THE IMPUGNED TRANSACTIONS ARE ACTUAL, GE NUINE ETC. THE ASSESSEE SHALL COMPLY WITH THE AOS REQUIREMENTS AS PER LAW. THE AO IS ALSO FREE TO CONDUCT APPROPRIATE ENQUIRY AS D EEMED FIT. THE AO SHALL ALSO BRING ON RECORD THE ROLE OF THE ASSESSEE IN PROMOTING THE COMPANY AND RELATIONSHIP OF THE ASSESSEE WITH OTHER PROMOTERS, ROLE OF THE ASSESSEE IN INFLATING THE PRICE OF SHARES, E TC. AS HAD BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF KANHAIYALAL & SONS (HUF) V. ITO IN I.T.A. NO.1849/CHNY/2018, DATE D 06.02.2019 10 ITA NO.1484/CHNY/2019 REFERRED TO SUPRA. THE AO SHALL FURNISH ADEQUATE O PPORTUNITY TO THE ASSESSEE ON THE MATERIAL ETC TO BE USED AGAINST HIM AND ON APPRECIATION OF ALL THE ASPECTS, THE AO WOULD DECID E THE MATTER IN ACCORDANCE WITH LAW. THUS, THE ISSUES OF EXEMPTION CLAIM U/S 10(38) ARE RESTORED TO THE FILE OF THE ASSESSING OFFICER F OR RE-ADJUDICATION ON THE LINES INDICATED ABOVE. 5. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON THE 16 TH SEPTEMBER, 2019 AT CHENNAI. SD/- SD/- #$ /CHENNAI, %& /DATED 16 TH SEPTEMBER, 2019 RSR &' () *) /COPY TO: +, /APPELLANT 2. /RESPONDENT 3. - ( ) /CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 2 /GF ( 3 , , 3 , /' 4 (N.R.S. GANESAN) $ &5 JUDICIAL MEMBER ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER